By Dale Kasler
dkasler@sacbee.com
Published: Tuesday, Nov. 2, 2010 – 12:00 am | Page 6B

CalSTRS once again faces the controversial task of cutting its investment return forecast, a move that could put more pressure on the Legislature to increase its annual contribution to the teachers pension fund.

At its meeting Friday, the CalSTRS governing board is scheduled to vote on a staff recommendation to reduce the forecast of annual investment returns by half a percentage point, to 7.5 percent.

The move sounds subtle but would have major implications for taxpayers, teachers and the amount of money they pour into the California State Teachers’ Retirement System.

CalSTRS is already preparing to ask the Legislature next year for more money to help the fund recover from heavy investment losses. Lowering the investment forecast would increase the amount of money CalSTRS needs from the Legislature by hundreds of millions of dollars – at a time when budgets are tight and public employee pensions are politically unpopular.

The issue is so sensitive, in fact, that the CalSTRS board blinked the last time it was scheduled to vote on the forecast. Faced with an identical recommendation from its staff in June, it put off voting. Now the staff and its consultants say it’s time for the board to deal with the issue once and for all.

In a memo to the board released last week, the Milliman consulting firm said the current rate of 8 percent “is no longer reasonably expected to be achieved in either the short or long term.”

The volatility in the stock market, plus record-low returns from bond holdings, are forcing public pension funds everywhere to rethink their investment forecasts. The California Public Employees’ Retirement System is scheduled to vote in February on changes to its forecast, which has been pegged at 7.75 percent for the past seven years.

Public pension funds in New York state, Virginia, Indiana, Colorado and Pennsylvania are among those that have reduced their forecasts in the past year, said Keith Brainard, research director at the National Association of State Retirement Administrators.

The funds depend heavily on their investment returns and change their forecasts rarely and reluctantly; CalSTRS’ forecast has held steady at 8 percent since 1995.

CalSTRS gets about $6 billion a year from the state, school districts and the teachers themselves. Even with its current, more optimistic investment forecast, CalSTRS believes it needs another $3.8 billion from those sources to recover from its losses, said spokesman Ricardo Duran.

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